EY stated
that “the Project [still] retains a high level of inherent risk”. The firm said
that the risks included “a series of complex and significant activities” which
will command a “high planned spend rate”.
Cited as
examples were construction at the North and South Dams, continuing power plant
installation, turbine and generator installation, HVDC commissioning, and the
approaching winter.
It has less to do with the unrepayable $12.9 billion project cost — which has irreparably imperilled the treasury — than it does the deceitful and reckless decisions by Nalcor senior officials and possibly senior politicians who suppressed public knowledge of those risks, ostensibly to make the project happen, whatever the price. As a result, a contrived business case constituted the political fuel that assured project sanction.
The solvency
of the province is a major issue, to be sure, but don’t discount the importance
of accountability.
When the general
public figures out that they have been unwitting dupes and that public services
will be sacrificed to pay for Muskrat power — though a worse outcome is inevitable
— integrity, full disclosure and governance issues will boil to the surface.
The public will think about the culture of deceit that got us into this mess.
They will query appropriate penalties for malfeasance by public officials. They
will want the chief culprits put in jail.
For that
reason, as the devastating financial implications unfold, sooner or later
Nalcor’s deceit will get public attention. Worth remembering is that at the
heart of the narrative are those unaccounted-for and undisclosed “high level”,
“inherent” risks.
Yes, these
matters have been discussed before.
But it is
worth tying together what we know, acknowledge who issued warnings of possible
malfeasance in the project’s conception and birth, and consider why the
government is, so far, out of step with the urgency of an investigation.
There is a
risk that Nalcor’s management incompetence could be confused with evidence of
falsification and malfeasance. Indeed, the October 29, 2015 EY Summary Report https://www.gov.nl.ca/mfoversight/pdf/EYCostScheduleReview.pdf
may have
helped create that impression. It had found, at that time, several key cost
management process and control risks and issues which included this sampler:
- “Certain
baseline documents defining contractor schedules as well as the documents
defining the control of project schedules were not yet complete.”
-
“Nalcor
uses a relatively basic approach to its updating of forecasted contingency
requirements which in our experience is not consistent with the expected
practices for a project of this scale and complexity.”
- “Fully
quantified risks or trends have not been documented for certain significant
challenges on the project. The scale of potential challenges is also not
quantified in the summary reporting…”
However, in the
2016 EY Interim Report, the firm vastly elevated the scale of the problem. The risks
to the cost and schedule had been seriously understated.
EY warned:
-
“…
that the September 2015 Forecast is not reasonable.”
-
“…
there is a risk of multiple-month delay to completion of the… transmission
line… and risks associated with the remaining scope…”
-
“Risks
on cost and schedule are not adequately reflected in [Nalcor’s] September 2015
Forecast.”
-
“the
current contingency level… is low…”
The Report
also noted that the all-important Schedule had not been updated in three years.
EY was the
first consultancy to confirm that the figures used by Nalcor to justify project
sanction were “not reasonable”.
Following
release of that Report, newly minted CEO Stan Marshall raised the price tag of
the project from $6.2 billion to $10.1 billion plus financing, and raised it again
— having reached a settlement over Astaldi’s billion dollar claim — bringing
the total forecast cost, including financing, to $12.7 billion.
Marshall also
added $75 million a year to the amount needed to operate the hydroelectric
project, calling the prior 2012 estimates “significantly below industry
standards.”
Added
Marshall: “I don't know what the motivation was. I don't know what happened and
who made the decisions. Unfortunately I have seen a lot of evidence… which
suggests to me that intentionally or otherwise, the costs were significantly
underestimated.”
The mere
suggestion of the word “intentional” by the CEO, in reference to the low-balled
estimates, easily conjures questions of fraud and malfeasance. The
consequences, even if not fully understood by all, are massive.
On its own merit, the allegation ought to have inspired the politicians to action and tweaked the ears of the RCMP fraud squad.
What is our
next tie to the EY Interim Report’s and to Stan Marshall’s allegations?
On January
31 and February 6, 2017 the Nalcor whistleblower who worked on the project,
euphemistically known as the Anonymous Engineer (AE), gave considerable
additional context to what Stan Marshall was making pretty clear. Said the AE:
“I could not put up with falsifying
information anymore.
“To begin with, the original cost of
$6.2 billion on which the project was approved was a complete falsification.
The estimate was deliberately kept low — below $7 billion, so as to appear
favourable relative to the cost of thermal power generation.
“The likely costs were known about
three years ago, but Nalcor Management kept it a secret, steadfastly denying
that there were major schedule delays and cost overruns, until it was no longer
possible to hide the true status with the election of a new Provincial
Government.”
Indeed,
following the AE’s disclosure I had expected to hear from the RCMP looking to contact
the whistleblower. He was a witness to the deceit. And, hadn’t the AE called
Nalcor’s public utterances about project costs “falsification of information on
a massive scale”?
But there’s
more.
If the RCMP
felt that the public disclosures by EY, Stan Marshall and the AE were inadequate
to justify throwing off its inertia, SNC-Lavalin made it very easy for them to
open a file on the Muskrat Falls project.
In June-2017
SNC-Lavalin produced a Risk Assessment Report that the company says was presented
to Nalcor officials in 2013 which confirmed many of the reasons that project costs
were climbing to unbearable levels.
The 2013 Report
constituted no ordinary warning. And it was undertaken by no ordinary
engineering firm.
SNC was
integral in devising the financing strategies and engineering design for
development of the Muskrat Falls project. It had been given the EPC contract
until, for still obscure reasons, Nalcor decided to take much of that work
in-house.
The 28-page Report detailed Nalcor’s incompetence in dramatic detail, chronicling a lack of
technical and logistical readiness, as well as recklessness.
Described were
risks that included a failure to do adequate geotechnical investigations at the
North Spur and in the riverbed under the footprint of the dam and coffer dam.
It said that Nalcor ignored the risks associated with the restricted pool of
major contractors who would hold the project's budget and schedule hostage, and
described the Crown Corporation’s gross underestimation of labour and other requirements.
SNC identified 40 risks, 25 of which it considered Very High Risks. It said that
the Very High Risks represent “90% of the total number of identified risks from
the Lower Churchill project. This is unusual for a project in execution” (p.5).
SNC-Lavalin added: “Our concern is we foresee
that the project will incur more than a 30% cost overrun if the project does
not take action on the risk elements raised in the Risk Assessment Report. The
actual project structure is contributing to this increasing risk factor. Client
has limited experience in huge civil work and earth-filled dam work, power line
and power station works.”
SNC had brought
the hammer down on Nalcor. The company confirmed that deceit had occurred at
the highest level. CEO Stan Marshall disclosed that senior Nalcor officials had
been handed the Report, even if the senior Nalcor executive present held
clenched fists.
The Report detailed
what, by any standard, were project killers. SNC confirmed that the Muskrat
Falls project — even prior to sanction — was DOA (dead on arrival).
Related:
Strangely,
when the public learned of the Report’s existence, the Premier was ready to
diminish its importance, having contrived reasons (albeit with Stan Marshall’s
help) to delay — or is it deter? — an investigation.
The latest EY
Report is openly more deferential to Nalcor. But it still contains echoes of
the unmistakable gasp with which it first uncovered the project’s complete lack
of both engineering and economic underpinnings. In short, many of the same
major risks it and SNC recited still threaten the reliability of even the
current $12.7 billion project estimate.
States EY: “The
Project, Nalcor Board and the Provincial Government should maintain a
relentless focus on risk management given the Project’s high level of inherent
risk.”
That the
province has been placed in the position of overseeing not merely a boondoggle but
a debacle of untold financial consequence is a certainty.
That’s bad
enough. But the Ball Government wants to ignore the truth that those
disclosures occurred. Worse, the Premier is facilitating a situation in which the
culprits are unimpeded and shielded even from examination.
When a
society has been irreparably harmed, when people’s lives — socially and
financially — are turned upside down due to malfeasance, deceit and chicanery,
is there any solace except whatever justice is derived from seeing the
perpetrators investigated, exposed, and punished?
When the
Government is part of the conspiracy, suppressing any accountability, what does
it say about them?
Is this a
group to whom the RCMP should be paying deference?
Shouldn’t
those who shield possible criminality be investigated, too?
Inevitably,
the RCMP will have to account for its own flat-footedness.
